City of Chicago, Illinois Chicago Midway International Airport

Transcription

1 City of Chicago, Illinois Chicago Midway International Airport Basic Financial Statements as of and for the Years Ended December 31, 2009 and 2008, Required Supplementary Information, Additional Information, Statistical Information, and Independent Auditors Report

2 CITY OF CHICAGO, ILLINOIS CHICAGO MIDWAY INTERNATIONAL AIRPORT TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 1 2 Page MANAGEMENT S DISCUSSION AND ANALYSIS (REQUIRED SUPPLEMENTARY INFORMATION) 3 10 BASIC FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008: Statements of Net Assets 11 Statements of Revenues, Expenses and Changes in Net Assets 12 Statements of Cash Flows Notes to Basic Financial Statements ADDITIONAL INFORMATION Debt Service Coverage Calculations: Chicago Midway Airport Revenue Bonds Chicago Midway Airport Second Lien Revenue Bonds STATISTICAL INFORMATION: Historical Operating Results, Each of the Ten Years Ended December 31, Debt Service Schedule 39 Midway Airport Revenue Bonds, Series 1996 Estimated Bond-Funded Costs as of December 31, Capital Improvement Program , Estimated Sources and Uses of Funds as of December 31, Terminal Development Program, Estimated Sources and Uses of Funds as of December 31, Historical Enplaned Passengers, Each of the Ten Years Ended December 31, Enplaned Commercial Passengers by Airline, Each of the Ten Years Ended December 31,

3 CITY OF CHICAGO, ILLINOIS CHICAGO MIDWAY INTERNATIONAL AIRPORT TABLE OF CONTENTS Historical Enplaned Passengers Chicago Region Airports, Each of the Ten Years Ended December 31, Historical Total Origin and Destination (O&D) Enplanements Chicago Region Airports, Each of the Ten Years Ended December 31, Aircraft Operations, Each of the Ten Years Ended December 31, Net Assets by Component, Each of the Four Years Ended December 31, Change in Net Assets, Each of the Four Years Ended December 31, Long Term Debt, Each of the Four Years Ended December 31, Full Time Equivalent Chicago Midway Airport Employees by Function, Each of the Four Years Ended December 31, Principal Employers (Non-Government) 52 Population and Income Statistics 53 Page

4 INDEPENDENT AUDITORS REPORT The Honorable Richard M. Daley, Mayor, and Members of the City Council City of Chicago, Illinois We have audited the accompanying basic financial statements of Chicago Midway International Airport (Midway) of the City of Chicago, Illinois (City) as of December 31, 2009 and 2008, and for the years then ended, listed in the foregoing table of contents. These financial statements are the responsibility of the City s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control over financial reporting for Midway. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1, the basic financial statements referred to above present only Chicago Midway International Airport and are not intended to present the financial position of the City, the results of its operations, and its cash flows, in conformity with accounting principles generally accepted in the United States of America. In our opinion, such basic financial statements present fairly, in all material respects, the financial position of Chicago Midway International Airport as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The Management s Discussion and Analysis as listed in the foregoing table of contents is not a required part of the basic financial statements, but is supplementary information required by the Governmental Accounting Standards Board. The Management s Discussion and Analysis is the responsibility of the City s management. We have applied certain limited procedures that consisted principally of inquiries of management regarding methods of measurement and presentation of the required supplementary information. However, we did not audit the information and we express no opinion or any other form of assurance on it. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information listed in the foregoing table of contents, which is also the

5 responsibility of the City s management, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such additional information has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly presented, in all material respects, when considered in relation to the financial statements taken as a whole. The statistical information, as listed in the foregoing table of contents, is also presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such statistical information has not been subjected to auditing procedures and, accordingly, we do not express an opinion or any other form of assurance on it. June 29,

6 MANAGEMENT S DISCUSSION AND ANALYSIS ($ IN THOUSANDS) This following discussion and analysis of the Airport s performance provides an introduction and overview of the Airport s financial activities for the fiscal years ended December 31, 2009 and Please read this discussion in conjunction with the Airport s basic financial statements and the notes to basic financial statements following this section. FINANCIAL HIGHLIGHTS Operating revenues for 2009 decreased by $2,684 compared to prior year operating revenues. Operating expenses before depreciation and amortization decreased by $10,011 compared to 2008, primarily due to reimbursement for professional fees related to the study of the privatization of the Airport. The Airport s total net assets at December 31, 2009 were $207,658. This is a decrease of $36,327 compared to total net assets at December 31, Capital asset additions for 2009 were $38,636, principally due to land acquisition, terminal improvements, security enhancements, parking and runway improvements. Operating revenues for 2008 increased by $17,732 compared to prior year operating revenues. Operating expenses before depreciation and amortization decreased by $1,630 compared to 2007, primarily due to decreased salaries and wages, energy and other operating expenses. The Airport s total net assets at December 31, 2008 were $243,985. This is a decrease of $38,405 compared to total net assets at December 31, Capital asset additions for 2008 were $30,842, principally due to land acquisition, terminal improvements, security enhancements, parking and runway improvements. OVERVIEW OF THE BASIC FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the Airport s basic financial statements. The Airport s basic financial statements are comprised of the financial statements and the notes to financial statements. In addition to the basic financial statements this report also presents additional and statistical information after the notes to basic financial statements. The Statements of Net Assets present all of the Airport s assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by private-sector companies. The difference between assets and liabilities is reported as net assets. The increase or decrease in net assets may serve as an indicator, over time, whether the Airport s financial position is improving or deteriorating. However, the consideration of other non-financial factors such as changes within the airline industry may be necessary in the assessment of overall financial position and health of the Airport

7 The Statements of Revenues, Expenses and Changes in Net Assets present all current fiscal year revenues and expenses, regardless of when cash is received or paid, and the ensuing change in net assets. The Statements of Cash Flows report how cash and cash equivalents are provided and used by the Airport s operating, capital financing and investing activities. These statements are prepared on a cash basis and present the cash received and disbursed, the net increase or decrease in cash and cash equivalents for the year and the cash and cash equivalents balance at year-end. The Notes to Basic Financial Statements are an integral part of the basic financial statements; accordingly, such disclosures are essential to a full understanding of the information provided in the basic financial statements. In addition to the basic financial statements, this report includes Additional and Statistical Information. The Additional Information section presents debt service coverage calculations and the Statistical Information section includes certain unaudited information related to the Airport s historical financial and non-financial operating results and capital activities. FINANCIAL ANALYSIS Landing fees and terminal area use charges and fueling system charges are assessed to the various airlines throughout each fiscal year based on estimated rates. Such rates are designed to yield collections from airlines adequate to cover certain operating expenses and required debt service and fund deposits as determined under provisions of the Airport Use Agreement and Facilities Lease (Use Agreement). Incremental amounts due from the airlines arise when amounts assessed, based on the estimated rates used during the year, are less than actual expenses and required deposits for the year. Such incremental amounts due from airlines are included in accrued revenue. Incremental amounts due to the airlines arise when amounts assessed, based on the estimated rates used during the year, exceed actual expenses and required deposits for the year. Such incremental amounts due to airlines are included in deferred revenue

8 At December 31, 2009, the Airport s financial position continued to be strong with total assets of $1,581,342, total liabilities of $1,373,684, and net assets of $207,658. A comparative condensed summary of the Airport s net assets at December 31, 2009, 2008, and 2007 is as follows: Net Assets Current assets $ 66,101 $ 64,925 $ 66,928 Noncurrent assets: Restricted and other assets 347, , ,466 Capital assets net 1,168,196 1,169,433 1,177,929 Total noncurrent assets 1,515,241 1,504,878 1,578,395 Total assets $ 1,581,342 $ 1,569,803 $ 1,645,323 Current liabilities $ 60,310 $ 34,099 $ 48,133 Noncurrent liabilities 1,313,374 1,291,719 1,314,800 Total liabilities $ 1,373,684 $ 1,325,818 $ 1,362,933 Net assets: Invested in capital assets, net of related debt $ 708 $ 40,352 $ 31,251 Restricted 201, , ,344 Unrestricted 5,792 19,614 18,795 Total net assets $ 207,658 $ 243,985 $ 282, Current assets increased by $1,176 (1.8 percent) primarily due to a decreased balance in cash and investments offset by an increase in accounts receivable at December 31, The Airport s current ratio (current assets/current liabilities) at December 31, 2009 and 2008 was 1.10:1 and 1.90:1, respectively. Restricted and other assets increased by $11,600 (3.5 percent) mainly due to an increase in deferred noise mitigation costs. Net capital assets decreased by $1,237 (.1 percent) due principally to depreciation. The increase in current liabilities of $26,211 (76.9 percent) is mainly related to the increase in amounts due to other City funds and an increase in deferred revenue of $3,248 and $18,235, respectively. The increase in due to other city funds is mainly due to benefits and related personnel costs and the increase in deferred revenue represents primarily the net adjustment for current year activity. Noncurrent liabilities increased by $21,655 (1.7 percent) in 2009 mainly due to the increase in accounts payable for restricted funds and notes payable of $9,591 and $50,686, respectively partially offset by decrease long term debt in revenue bonds payable of $37,721. Net assets may serve, over a period of time, as a useful indicator of the Airport s financial position. At December 31, 2009, total net assets were $207,658, a decrease of $36,327 (14.9 percent) over Due to the residual Airport use agreement, this decrease is mainly due to timing differences between depreciation on property and facilities, and the cash requirements required for debt service Current assets decreased by $2,003 (3.0 percent) primarily due to a decreased balance in investments at December 31, The Airport s current ratio (current assets/current liabilities) at December 31, 2008 and - 5 -

9 2007 was 1.90:1 and 1.39:1, respectively. Restricted and other assets decreased by $65,021 (16.2 percent) mainly due to the payment of construction costs and the use of capitalized interest and Passenger Facility Charges (PFC) for payments on debt service. Net capital assets decreased by $8,496 (0.7 percent) due principally to less capital activities of the Capital Improvement Plan and depreciation. The decrease in current liabilities of $14,034 (29.2 percent) is mainly related to the decrease in amounts due to other City funds and deferred revenue of $2,371 and $11,004, respectively. The decrease in due to other city funds is mainly due to benefits and related personnel costs and the decrease in deferred revenue represents primarily the net adjustment for current year activity and current year payments of deferred revenue. Noncurrent liabilities decreased by $23,081 (1.8 percent) in 2008 mainly due to the decreases in accounts payable and revenue bonds payable of $8,354 and $13,623, respectively. Net assets may serve, over a period of time, as a useful indicator of the Airport s financial position. At December 31, 2008, total net assets were $243,985, a decrease of $38,405 (13.6 percent) over Due to the residual Airport use agreement, this decrease is mainly due to timing differences between depreciation on property and facilities, and the cash requirements required for debt service. The primary sources of Airport operating revenues are landing fees, terminal area use charges, rents and concession revenues as defined within the Airline Use Agreement and Facilities Lease. These revenues fund Airport operating expenses, fund deposits and net debt service requirements. A comparative condensed summary of the Airport s changes in net assets for the years ended December 31, 2009, 2008, and 2007 is as follows: Changes in Net Assets Operating revenues: Landing fees and terminal area uses charges $ 52,640 $ 54,985 $ 36,914 Rents, concessions and other 69,661 70,000 70,339 Total operating revenues 122, , ,253 Operating expenses: Salaries and wages 39,521 36,931 39,998 Repairs and maintenance 37,967 37,399 36,863 Professional and engineering 6,727 19,775 14,780 Other operating expenses 15,426 15,547 19,641 Depreciation and amortization 47,667 45,944 42,437 Total operating expenses 147, , ,719 Operating loss (25,007) (30,611) (46,466) Nonoperating revenues 47,985 47,442 60,116 Nonoperating expenses (59,305) (62,013) (57,363) Capital grants 6,777 30,565 Decrease in net assets $ (36,327) $ (38,405) $ (13,148) - 6 -

10 2009 Landing fees and terminal area use charges for the years 2009 and 2008 were $52,640 and $54,985, respectively. Rents, concessions and other revenues were $69,661 and $70,000 for the years 2009 and 2008, respectively. The decrease in 2009 operating revenues of $2,684 (2.1 percent) from 2008 was mainly due to decreased landing fees and concessions of $6,962 and $5,023 respectively, offset by increased other rental revenues of $9,301. Such changes were due to the residual Airport Use Agreement and Facilities Leases that require airline revenue to be recognized to the extent necessary to pay the Airport s operating and maintenance expenses, net debt service and fund deposit requirements, reduced by non-airline revenues. Salaries and wages increased by $2,590 (7.0 percent) in 2009 compared to Professional and engineering expenses decreased by $13,048 (66.0 percent) mainly due to reimbursement of costs from a deposit forfeiture of $7,578. Depreciation and amortization expense increased $1,723 (3.8 percent) as a result of the increased capital assets due to the activities of the ongoing Capital Improvement Program. Fiscal year 2009 nonoperating revenues of $47,985 are comprised mainly of passenger facility charges (PFC) revenue $34,009, customer facility charges (CFC) revenue $5,853, interest income of $1,051 and other non operating revenues of $7,072. During 2009, nonoperating revenues remained relatively flat. Nonoperating expenses of $59,305 and $62,013 for the years 2009 and 2008, respectively, were comprised of bond interest expense. The decrease of $2,708 (4.4 percent) for 2009 over 2008 was mainly due to decreased interest expense related to bonds and less capitalized interest captured as capital projects are completed. Capital grants, mainly comprised of Federal grants, decreased $6,777 in 2009 as a result of when capital expenditures were incurred (revenue recognized) and thus became eligible for the related reimbursement from the Federal government Landing fees and terminal area use charges for the years 2008 and 2007 were $54,985 and $36,914, respectively. Rents, concessions and other revenues were $70,000 and $70,339 for the years 2008 and 2007, respectively. The increase in 2008 operating revenues of $17,732 (16.5 percent) over 2007 was mainly due to increased landing fees, terminal area use charges and concessions of $9,295 and $10,538, respectively, offset by decreased other rental revenues of $2,101. Such changes were due to the residual Airport Use Agreement and Facilities Leases that require airline revenue to be recognized to the extent necessary to pay the Airport s operating and maintenance expenses, net debt service and fund deposit requirements, reduced by non-airline revenues. Salaries and wages decreased by $3,067 (7.7 percent) in 2008 compared to This decrease is mainly due to reductions in pension requirements and overtime. Professional and engineering expenses increased by $4,995 (33.8 percent) mainly due to additional professional fees related to the study of the privatization of Midway Airport of approximately $2,326 and additional parking management fees of $1,820. Other operating expenses decreased by $4,094 (20.8 percent) mainly due to decreased vehicle costs ($3,173) and electricity costs ($900). Depreciation and amortization expense increased $3,507 (8.3 percent) as a result of the increased capital assets due to the activities of the ongoing Capital Improvement Program. Fiscal year 2008 nonoperating revenues of $47,442 are comprised mainly of passenger facility charges (PFC) revenue $32,161, customer facility charges (CFC) revenue $6,882, and interest income $7,622. During 2008, nonoperating revenues decreased by $12,674 principally due to decreases in PFC revenues $5,528 and interest income $6,

11 Nonoperating expenses of $62,013 and $57,363 for the years 2008 and 2007, respectively, were comprised of bond interest expense. The increase of $4,650 (8.1 percent) for 2008 over 2007 was mainly due to additional interest expense related to bonds and less capitalized interest captured as capital projects are completed. Capital grants, mainly comprised of Federal grants, decreased to $6,777 in 2008 from $30,565 in 2007, a 77.8 percent decrease, as a result of when capital expenditures were incurred (revenue recognized) and thus became eligible for the related reimbursement from the Federal government. A comparative summary of the Airport s cash flows for the years ended December 31, 2009, 2008, and 2007 is as follows: Cash Flows Cash from activities: Operating $ 43,665 $ 48 $ 9,264 Capital and related financing (51,857) (84,756) (58,290) Investing (90,733) 69, ,588 Net change in cash and cash equivalents (98,925) (15,632) 53,562 Cash and cash equivalents: Beginning of year 241, , , End of year $ 142,432 $ 241,357 $ 256,989 As of December 31, 2009 the Airport s available cash and cash equivalents of $142,432 decreased by $98,925 compared to $241,357 at December 31, 2008 due to investing activities of $90,733 and $69,076, respectively, offset by the use of $51,857 for capital and related financing activities. Total cash and cash equivalents at December 31, 2009 were comprised of unrestricted and restricted cash and cash equivalents of $7,049 and $135,383 respectively As of December 31, 2008 the Airport s available cash and cash equivalents of $241,357 decreased by $15,632 compared to $256,989 at December 31, 2007 due to positive flows of cash provided by operating and investing activities of $48 and $69,076, respectively, offset by the use of $84,756 for capital and related financing activities. Total cash and cash equivalents at December 31, 2008 were comprised of unrestricted and restricted cash and cash equivalents of $54,599 and $186,758, respectively. CAPITAL ASSET AND DEBT ADMINISTRATION At the end of 2009 and 2008 the Airport had $1,168,196 and $1,169,433, respectively, invested in net capital assets. During 2009, the Airport had additions of $38,635 related to capital activities. This included $3,079 for land acquisition and the balance of $35,556 for construction projects relating to terminal improvements, security enhancements, parking and runway improvements. During 2009, completed projects totaling $34,949 were transferred from construction in progress to applicable buildings and other facilities capital account. These major completed projects were related to parking, runways, security enhancements and terminal improvements

12 The Airport s capital assets at December 31, 2009, 2008, and 2007 are summarized as follows: Capital Assets at Year-end Capital assets not depreciated: Land $ 106,918 $ 103,839 $ 102,832 Construction in progress 36,042 35,435 21,237 Total capital assets not depreciated 142, , ,069 Capital assets depreciated: Buildings and other facilities 1,318,793 1,283,844 1,268,207 Less accumulated depreciation for: Buildings and other facilities (293,557) (253,685) (214,347) Total capital assets depreciated net 1,025,236 1,030,159 1,053,860 Total property and facilities net $ 1,168,196 $ 1,169,433 $ 1,177,929 The Airport s capital activities are funded through Airport revenue bonds, Federal and State grants, passenger facility charges (PFC) and Airport revenue. Additional information on the Airport s capital assets is presented in Note 5 of the notes to the financial statements. The Airport issued $61,360 of Commercial Paper Notes during 2009 having interest rates from 0.25% to 0.75% percent with a maturity date of January 6, Note proceeds may be used to finance portions of the costs of authorized airport projects and to repay the expenses of issuing the notes. The Airport s outstanding debt at December 31, 2009, 2008, and 2007 is summarized as follows (dollars in thousands): Outstanding Debt at Year-end Revenue bonds and notes payable $ 1,266,515 $ 1,254,664 $ 1,269,169 Unamortized: Bond discount (8,812) (9,411) (9,780) Deferred loss on refunding (6,899) (7,414) (7,927) 1,250,804 1,237,839 1,251,462 Current bonds payable (54,650) (36,635) (14,505) Total long-term revenue bonds and notes payable net $ 1,196,154 $ 1,201,204 $ 1,236,957 Additional information on the Airport s long-term debt is presented in Note 4 of the notes to basic financial statements and in the Statistical Information section of this report

13 The Airport s revenue bonds at December 31, 2009 had credit ratings with each of the three major rating agencies as follows: Moody s Investor Standard Fitch Services & Poor s Ratings First Lien Chicago Midway Revenue Bonds A2 A A+ Second Lien Chicago Midway Revenue Bonds A3 A- A At December 31, 2009 and 2008 the Airport believes it was in compliance with the debt covenants as stated within the Master Trust Indentures. ECONOMIC FACTORS AND NEXT YEAR RATES AND CHARGES The airlines using Chicago Midway International Airport generally provide low fare, point-to-point origination and destination passenger service. During 2009 and 2008, Southwest Airlines accounted for 83.9 and 83.1 percent, respectively, of total enplanements at the Airport. Based on the Airport s rates and charges for fiscal year 2010, total budgeted operating and maintenance expenses are projected at $116,098 and total net debt service and fund deposit requirements are projected at $39,257. Additionally, 2010 non-airline and non-signatory revenues are budgeted for $60,847, resulting in a net airline requirement of $94,509 that will be funded through landing fees, terminal area use charges, and fueling system charges. REQUESTS FOR INFORMATION This financial report is designed to provide the reader with a general overview of the Airport s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Chicago Comptroller s Office

14 CITY OF CHICAGO, ILLINOIS CHICAGO MIDWAY INTERNATIONAL AIRPORT STATEMENTS OF NET ASSETS AS OF DECEMBER 31, 2009 AND 2008 ($ in thousands) ASSETS LIABILITIES CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents (Note 2) $ 7,049 $ 54,599 Accounts payable and accrued liabilities $ 17,085 $ 14,826 Investments (Note 2) 43,432 Due to other City funds 7,388 4,140 Accounts receivable net of allowance for doubtful accounts of Advances for terminal and hangar rent 4,404 1,935 approximately $1,343 in 2009 and $1,491 in ,932 6,773 Deferred revenue 31,433 13,198 Due from other City funds 3,564 3,176 Total current liabilities 60,310 34,099 Prepaid expenses Interest receivable NONCURRENT LIABILITIES: Liabilities payable from restricted assets (Note 3): Total current assets 66,101 64,925 Revenue bond payable (Note 4) 54,650 36,635 Interest rate swap premium (Note 4) 15,408 16,185 NONCURRENT ASSETS: Accounts payable 23,129 13,538 Restricted assets (Note 3): Due to other City funds Cash and cash equivalents (Note 2) 135, ,758 Interest payable 23,613 24,154 Investments (Note 2) 94,584 46,243 Due from other governments 5 3,349 Total liabilities payable from restricted assets 117,220 90,515 Accounts receivable (Note 1) 4,602 2,684 Interest receivable Revenue bonds payable net of discount (Note 4) 1,134,794 1,190,530 Notes payable 61,360 10,674 Total restricted assets 234, ,155 Total long-term liabilities 1,196,154 1,201,204 Other assets deferred noise mitigation costs and financing fees 112,285 96,290 Total noncurrent liabilities 1,313,374 1,291,719 Property and facilities (Note 5): Land 106, ,839 Total liabilities 1,373,684 1,325,818 Buildings and other facilities 1,318,793 1,283,844 Construction in progress 36,042 35,435 NET ASSETS (Note 1): Invested in capital assets net of related debt ,352 Total property and facilities 1,461,753 1,423,118 Restricted net assets: Less accumulated depreciation 293, ,685 Debt service Capital projects 10,408 26,486 Property and facilities net 1,168,196 1,169,433 Passenger facility charges 9,620 4,782 Airport use agreement 30,565 31,019 Total noncurrent assets 1,515,241 1,504,878 Noise mitigation program 105,540 89,214 Other assets 45,025 32,518 Total restricted net assets 201, ,019 Unrestricted net assets 5,792 19,614 Total net assets 207, ,985 TOTAL $ 1,581,342 $ 1,569,803 TOTAL $ 1,581,342 $ 1,569,803 See notes to basic financial statements

15 CITY OF CHICAGO, ILLINOIS CHICAGO MIDWAY INTERNATIONAL AIRPORT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 ($ in thousands) OPERATING REVENUES: Landing fees and terminal area use charges (Note 1) $ 52,640 $ 54,985 Rents, concessions and other (Note 6) 69,661 70,000 Total operating revenues 122, ,985 OPERATING EXPENSES (Notes 7 and 8): Salaries and wages 39,521 36,931 Repairs and maintenance 37,967 37,399 Professional and engineering services 6,727 19,775 Other operating expenses 15,426 15,547 Total operating expenses before depreciation and amortization 99, ,652 Depreciation and amortization 47,667 45,944 Total operating expenses 147, ,596 OPERATING LOSS (25,007) (30,611) NONOPERATING REVENUES (EXPENSES): Passenger facility charges revenues 34,009 32,161 Customer facility charges revenues 5,853 6,882 Interest income 1,051 7,622 Interest expense (Note 4) (59,305) (62,013) Other nonoperating revenues 7, Total nonoperating (expenses) revenues (11,320) (14,571) LOSS BEFORE CAPITAL GRANTS (36,327) (45,182) CAPITAL GRANTS (Note 1) 6,777 CHANGE IN NET ASSETS (36,327) (38,405) TOTAL NET ASSETS Beginning of year 243, ,390 TOTAL NET ASSETS End of year $ 207,658 $ 243,985 See notes to basic financial statements. Callouts in TOC need to be raised in pages with relevant page

16 CITY OF CHICAGO, ILLINOIS CHICAGO MIDWAY INTERNATIONAL AIRPORT STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 ($ in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Landing fees and terminal area use charges $ 71,124 $ 43,852 Rents, concessions and other 66,722 69,839 Payments to vendors (57,685) (73,031) Payments to employees (32,175) (33,827) Transactions with other City funds net (4,321) (6,785) Cash flows from operating activities 43, CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from issuance of notes 50,686 Acquisition and construction of capital assets (27,787) (37,258) Grant receipts 3,344 4,842 Principal paid on bonds (38,835) (14,505) Interest paid (59,713) (64,879) Cash paid for noise mitigation program (23,791) (11,683) Passenger facility charges revenues 31,967 31,871 Customer facility charges revenues 5,977 6,856 Deposit forfeiture 5,472 Fee reimbursement 823 Cash flows used in capital and related financing activities (51,857) (84,756) CASH FLOWS FROM INVESTING ACTIVITIES: Sales (purchases) of investments net (91,773) 58,119 Investment interest 1,040 10,957 Cash flows from investing activities (90,733) 69,076 NET CHANGE IN CASH AND CASH EQUIVALENTS (98,925) (15,632) CASH AND CASH EQUIVALENTS Beginning of year 241, ,989 CASH AND CASH EQUIVALENTS End of year $ 142,432 $ 241,357 (Continued)

17 CITY OF CHICAGO, ILLINOIS CHICAGO MIDWAY INTERNATIONAL AIRPORT STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 ($ in thousands) RECONCILIATION OF CASH AND CASH EQUIVALENTS REPORTED ON THE STATEMENTS OF NET ASSETS: Unrestricted $ 7,049 $ 54,599 Restricted 135, ,758 TOTAL $ 142,432 $ 241,357 RECONCILIATION OF OPERATING LOSS TO CASH PROVIDED BY OPERATING ACTIVITIES: Operating loss $ (25,007) $ (30,611) Adjustments to reconcile operating loss to cash flows from operating activities: Depreciation and amortization 47,667 45,944 Provision for uncollectible accounts (968) 444 Changes in assets and liabilities: Increase in accounts receivable (4,191) (289) (Increase) decrease due from other City funds (388) (1,468) Decrease in prepaid expenses Increase (decrease) in due to other City funds 3,248 (2,371) Increase (decrease) in deferred revenue and advances for terminal and hangar rent 20,704 (11,004) Increase (decrease) in accounts payable and accrued liabilities 2,259 (659) CASH FLOWS FROM OPERATING ACTIVITIES $ 43,665 $ 48 SUPPLEMENTAL DISCLOSURE OF NONCASH ITEMS: Property additions in 2009 and 2008 of $20,484 and $9,362, respectively, are included in accounts payable. The fair market value adjustments (loss) to investments for 2009 and 2008 were ($731) and ($344), respectively. See notes to basic financial statements. (Concluded)

18 CITY OF CHICAGO, ILLINOIS CHICAGO MIDWAY INTERNATIONAL AIRPORT NOTES TO BASIC FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2009 AND ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Chicago Midway International Airport (Airport) is operated by the City of Chicago (City) Department of Aviation. The Airport is included in the City s reporting entity as an Enterprise Fund. The City is a member of the Chicago-Gary Regional Airport Authority, which was created in 1995 to address the air transportation needs of the Chicago-Northwest Indiana Region. Basis of Accounting and Measurement Focus The accounting policies of the Airport are based upon accounting principles generally accepted in the United States of America, as prescribed by the Governmental Accounting Standards Board (GASB). The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. The accounts of the Airport are reported using the flow of economic resources measurement focus. The Airport uses the accrual basis of accounting, under which revenues are recognized when earned and expenses are recognized when incurred. Enterprise funds may elect to apply Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, provided that such standards are not in conflict with standards issued by the GASB. The Airport has elected not to apply FASB pronouncements issued after November 30, Annual Appropriated Budget The Airport has a legally adopted annual budget, which is not required to be reported. Management s Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. Cash, Cash Equivalents and Investments Cash, cash equivalents and investments generally are held with the City Treasurer as required by the Municipal Code of Chicago (Code). Interest earned on pooled investments is allocated to participating funds based upon their average combined cash and investment balances. Due to contractual agreements or legal restrictions, the cash and investments of certain funds are segregated and earn and receive interest directly. The Code permits deposits only to City Council-approved depositories which must be regularly organized state or national banks and Federal and State savings and loan associations, located within the City, whose deposits are federally insured. Investments authorized by the Code include interest-bearing general obligations of the City, the State of Illinois (State), and the U.S. Government; U.S. treasury bills and other non-interest-bearing general obligations of the U.S. Government purchased in the open market below face value; domestic money market mutual funds regulated by and in good standing with the Securities and Exchange Commission and tax anticipation warrants issued by the City. The City is prohibited by ordinance from investing in derivatives, as defined, without City Council approval

19 The Airport values its investments at fair value or amortized cost as applicable. U.S. Government securities purchased at a price other than par with a maturity of less than one year are reported at amortized cost. Repurchase agreements can be purchased only from banks and certain other institutions authorized to do business in the State. The City Treasurer requires that securities pledged to secure these agreements have a market value equal to the cost of the repurchase agreements plus accrued interest. Investments generally may not have a maturity in excess of ten years from the date of purchase. Certain other investment balances are held in accordance with the specific provisions of applicable bond ordinances. Cash equivalents include certificates of deposit and other investments with maturities of three months or less when purchased. Accounts Receivable Allowance Management has provided an allowance based on amounts recorded at year-end, which may be uncollectible. Revenues and Expenses Revenues from landing fees, terminal area use charges, fueling system charges, parking revenue and concessions are reported as operating revenues. Transactions that are related to financing, investing and passenger facility charges are reported as nonoperating revenues. Salaries and wages, repair and maintenance, professional and engineering services and other expenses that relate to Airport operations are reported as operating expenses. Interest expense, passenger facility charge expenses and financing costs are reported as nonoperating expenses. Transactions With the City The City s General Fund provides services to the Airport. The amounts allocated to the Airport for these services are treated as operating expenses and consist mainly of employee benefits, self-insured risks and administrative expenses. Other Assets Funds expended for the Noise Mitigation Program are recorded as other assets and amortized over a 20-year useful life on a straight-line basis. Property and Facilities Property and facilities are recorded at cost or, for donated assets, at market value at the date of acquisition. Expenditures greater than $5,000 for the acquisition, construction or equipping of capital projects, together with related design, architectural and engineering fees, are capitalized. Expenditures for vehicles and other movable equipment are expensed as incurred. Depreciation and amortization are provided using the straight-line method and begin in the year following the year of acquisition or completion. Estimated useful lives are as follows: Facilities and structures 40 years Runways, aprons, tunnels, taxiways and paved roads 30 years Other years Net Assets Net Assets comprise the net earnings from operating and nonoperating revenues, expenses and capital grants. Net assets are displayed in three components invested in capital assets, net of related debt; restricted for debt service, capital projects, passenger facility charges, airport use agreement requirements, noise mitigation program and other assets; and unrestricted. Invested in capital assets, net of related debt consists of all capital assets, net of accumulated depreciation and reduced by outstanding debt net of debt service reserve and unspent proceeds. Restricted net assets consist of net assets for which constraints are placed thereon by external parties (such as lenders and grantors) and laws, regulations and enabling legislation. Unrestricted net assets consist of all other net assets not categorized as either of the above

20 Employee Benefits Employee benefits are granted for vacation and sick leave, workers compensation and health care. Unused vacation leave is accrued and may be carried over for one year. Sick leave is accumulated at the rate of one day for each month worked, up to a maximum of 200 days. Severance of employment terminates all rights to receive compensation for any unused sick leave. Sick leave pay is not accrued. Employee benefit claims outstanding, including claims incurred but not reported, are estimated and recorded as liabilities. The Airport maintains insurance from a commercial carrier for workers compensation claims. Settlements in each of the past three years have been less than insurance coverage maintained. Employees are eligible to defer a portion of their salaries until future years under the City s deferred compensation plan created in accordance with Internal Revenue Code Section 457. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. The plan is administered by third-party administrators who maintain the investment portfolio. The plan s assets have been placed in trust accounts with the plan administrators for the exclusive benefit of participants and their beneficiaries and are not considered assets of the City. The City is subject to the State of Illinois Unemployment Compensation Act and has elected the reimbursing employer option for providing unemployment insurance benefits for eligible former employees. Under this option, the City reimburses the State for claims paid by the State. Bond Issuance Costs, Bond Discounts and Refunding Transactions Bond issuance costs and bond discounts are deferred and amortized over the life of the related debt, except in the case of refunding debt transactions where the amortization period is over the term of the refunding or refunded debt, whichever is shorter. Capitalized Interest Interest expense and income earned on construction bond proceeds are capitalized during construction on those capital projects paid for from the bond proceeds and are being amortized over the depreciable lives of the related assets on a straight-line basis. Capital Grants The Airport reports capital grants as revenue on the statements of revenues, expenses and changes in net assets. Capital grants are on a reimbursement basis and revenues are recognized to the extent of allowable expenditures. Revenue Recognition Landing fees and terminal area use charges and fueling system charges are assessed to the various airlines throughout each fiscal year based on estimated rates. Such rates are designed to yield collections from airlines adequate to cover certain expenses and required debt service and fund deposits as determined under provisions of the Airport Use Agreement and Facilities Leases (Use Agreement). Incremental amounts due from the airlines arise when amounts assessed, based on the estimated rates used during the year, are less than actual expenses and required deposits for the year. Such incremental amounts due from airlines are included in accrued revenue. Incremental amounts due to the airlines arise when amounts assessed, based on the estimated rates used during the year, exceed actual expenses and required deposits for the year. Such incremental amounts due to airlines are included in deferred revenue. Passenger Facility Charge (PFC) Revenue Effective January 1, 2007, the Federal Aviation Administration (FAA) approved PFCs of $4.50 per eligible enplaned passenger, less allowable airline administrative costs of $.11 per eligible enplaned passenger. PFCs are available, subject to FAA regulation and approval, to finance specific eligible capital projects. The City reports PFC revenue as nonoperating revenue and related expenses as nonoperating expenses in conformity with industry practice

21 2. RESTRICTED AND UNRESTRICTED CASH AND CASH EQUIVALENTS AND INVESTMENTS Investments As of December 31, 2009, the Airport had the following investments ($ in thousands): Investment Maturities (In Years) More Investment Type Less Than Than 10 Fair Value U.S. treasuries $ 3,999 $ $ $ $ 3,999 U.S. agencies 54,843 96, ,623 Certificates of deposits and other short-term 122, ,761 Subtotal $ 181,603 $ 96,780 $ $ 278,383 Share of City s pooled funds 16 Total $ 278,399 As of December 31, 2008, the Airport had the following investments ($ in thousands): Investment Maturities (In Years) More Investment Type Less Than Than 10 Fair Value U.S. treasuries $ $ $ $ $ U.S. agencies 12,521 34,698 47,219 Certificates of deposits and other short-term 228, ,268 Subtotal $ 240,789 $ 34,698 $ $ 275,487 Share of City s pooled funds 217 Total $ 275,704 Interest Rate Risk As a means of limiting its exposure to fair value losses arising from rising interest rates, the City s investment policy requires that investments generally may not have a maturity date in excess of ten years from the date of purchase. Certain other investments are held in accordance with the specific provisions of applicable ordinances

22 Credit Risk The Code limits investments in commercial paper to banks whose senior obligations are rated in the top two rating categories by at least two national rating agencies and who are required to maintain such rating during the term of such investment. The Code also limits investments to domestic money market mutual funds regulated by, and in good standing with, the Securities and Exchange Commission. Certificates of Deposit are also limited by the Code to national banks which provide collateral of at least 105% by marketable U.S. government securities marked to market at least monthly; or secured by a corporate surety bond issued by an insurance company licensed to do business in Illinois and having a claims-paying rating in the top rating category, as rated by a nationally recognized statistical rating organization maintaining such rating during the term of such investment. The following schedule summarizes the Airport s exposure to credit risk ($ in thousands): Quality Rating Aaa/AAA $ 278,383 $ 275,487 A/A Total funds $ 278,383 $ 275,487 The Airport participates in the City s pooled cash and investments account, which includes amounts from other City funds and is maintained by the City Treasurer. Individual cash or investments are not specifically identifiable to any participant in the pool. The Treasurer s pooled fund is included in the City s Comprehensive Annual Financial Report. Custodial Credit Risk Cash and Certificates of Deposit This is the risk that in the event of a bank failure, the City s deposits may not be returned. The City s Investment Policy states that in order to protect the City deposits, depository institutions are to maintain collateral pledges on City deposits during the term of the deposit of at least 105% of marketable U.S. government, or approved securities or surety bonds, issued by top-rated insurers. Collateral is required as security whenever deposits exceed the insured limits of the FDIC. The bank balance of cash and certificates of deposit with the City s various municipal depositories were $301.9 million and $372.1 million at December 31, 2009 and 2008, respectively. Of the bank balance, $301.9 million and $372.1 million or 100% and 100% at December 31, 2009 and 2008, respectively, were either insured or collateralized. The following schedule summarizes the investments reported in the basic financial statements ($ in thousands): Per Note 2: Investments Airport $ 278,383 $ 275,487 Investments City Treasurer Pooled Fund $ 278,399 $ 275,704 Per financial statements: Restricted investments $ 94,584 $ 46,243 Unrestricted investments 43,432 Investments included as cash and cash equivalents on the statements of net assets 140, ,461 $ 278,399 $ 275,

23 3. RESTRICTED ASSETS There are various limitations and restrictions contained in the Master Indenture of Trust securing the Chicago Midway Airport Revenue Bonds (First Lien Master Indenture) and the Master Indenture of Trust securing the Chicago Midway Airport Second Lien Obligation (Second Lien Master Indenture) and together with the First Lien Master Indenture (Master Indentures), the Use Agreement and Federal regulations contain various limitations and restrictions which, among other things, require the creation and maintenance of separate accounts, certain of which must be held by a trustee and into which required deposits are made by the Airport on a periodic basis to fund construction, debt retirement, operation and maintenance and contingencies. Restricted cash, cash equivalents and investment balances in accordance with the Master Indenture requirements are as follows ($ in thousands): December 31 Account Construction $ 21,048 $ 48,633 Capitalized interest 645 Debt service 61,507 49,522 Debt service reserve 64,309 64,309 Operation and maintenance reserve 18,442 18,244 Repair and replacement 4,640 4,675 Emergency reserve Special projects 7,086 7,627 Customer facility charge 31,252 24,723 Other 16,321 11,720 Subtotal Master Indentures and Use Agreement accounts 224, ,436 Passenger facility charges 5,009 2,565 Total $ 229,967 $ 233,001 Construction and capitalized interest accounts, which are funded with bond proceeds, are restricted to pay authorized capital improvements and related interest costs during construction. Required deposits are made by the Airport from revenues collected after funding deposits to an operation and maintenance account in the following priority on a monthly basis: The debt service account is restricted to the payment of debt service. The operation and maintenance reserve account is restricted to make loans to the operation and maintenance account, as needed, which are to be repaid as the funds become available. The debt service reserve account requirement was funded upon issuance of the Series 1994 bonds with a surety bond, and upon issuance of the Series 1996 bonds and Series 1998 first and second lien bonds with a cash deposit. The debt service reserve account is restricted to the payment of debt service in the event that the balance in the debt service account is insufficient